Headline inflation remained supported by base effect, but eased further to +2.0% YoY in Aug (Jul: +2.2% YoY), below consensus estimate of +2.2% YoY. CPI continued to be driven by transport, food & non-alcoholic beverages and housing, utilities & other fuels, albeit at a more moderate pace. Meanwhile, core inflation also eased to +0.6% YoY (Jul: +0.7% YoY).

DATA HIGHLIGHTS

Headline inflation eased further to +2.0% YoY in Aug (Jul: +2.2% YoY), lower than consensus estimate of +2.2% YoY. On a monthly basis, CPI was unchanged (Jul: - 0.6%). Most index groups recorded flat growth, with the exception of higher prices for food & non-alcoholic beverages (+0.1%; Jul: 0.0%) and housing, utilities & other fuels (+0.1%; Jul: -2.5%). This was offset by reduction in transport (-0.1%; Jul: +0.3%) and education (-0.1%; Jul: 0.0%).

While CPI continued to be driven by low base effect, most index groups posted softer growth rates. The main contributors to growth were transport (+11.0% YoY; Jul: +11.6% YoY), food & non-alcoholic beverages (+1.2% YoY; Jul: +1.3% YoY) and housing, utilities & other fuels (+0.6% YoY; Jul: +0.7% YoY), followed by restaurants & hotels (+0.6% YoY; Jul: +0.7% YoY).

The transport index (+11.0% YoY; Jul: +11.6% YoY) was supported by low retail fuel prices in the prior year. Retail fuel prices maintained its double-digit growth; RON 95 grew +22.4% YoY (Jul: +21.1% YoY), while RON 97 rose +38.5% YoY (Jul: +36.1% YoY). On a monthly basis, the index shrank -0.1% (Jul: +0.3%) due to decline in passenger transport by air (-4.7%; Jul: +5.6%).

Food inflation slightly moderated to +1.2% YoY (Jul: +1.3% YoY). Stricter mobility measures were still in place for most states during the month, resulting in a rise in ‘food at home’ (+1.4% YoY; Jul: +1.3% YoY) and lower growth in ‘food away from home’ (+1.0% YoY; Jul: +1.3% YoY). By food subgroups, vegetables (-0.4% YoY; Jul: +0.8% YoY) and milk, cheese & eggs (+1.0% YoY; Jul: +1.9% YoY) registered weaker growth rates. On the global front, food inflation picked up (+32.9% YoY; Jul: +31.5% YoY) following the rise in meat (+22.0% YoY; Jul: +21.1% YoY), cereals (+31.1% YoY; Jul: +29.6% YoY), sugar (+48.1% YoY; Jul: +44.1% YoY) and vegetable oils (+67.9% YoY; Jul: +66.7% YoY).

Services inflation slowed to +0.5% YoY (Jul: +0.7% YoY) as the pickup in recreation services & culture (+0.7% YoY; Jul: +0.6% YoY) offset moderation in restaurants & hotels (+0.6% YoY; Jul: +0.7% YoY). Communication (0.0% YoY; Jul: 0.0% YoY) and education (0.0% YoY; Jul: +0.1% YoY) was unchanged.

Core inflation (DOSM) eased to +0.6% YoY (Jul: +0.7% YoY) following lower growth in food & non-alcoholic beverages (+0.9% YoY; Jul: +1.1% YoY), transport (+0.7% YoY; Jul: +1.0% YoY), restaurants & hotels (+0.6% YoY; Jul: +0.7% YoY) and health (+0.3% YoY; Jul: +0.4% YoY).

HLIB’s VIEW

While headline inflation faces upward price pressures with the gradual economic reopening and lapse of electricity bill discounts post-Sep 2021, it is still expected to remain moderate with the fading base effect. Core inflation is also expected to remain muted with spare capacity in the economy. On this note, we expect no changes to the OPR rate for the rest of the year.

Source: Hong Leong Investment Bank Research - 27 Sept 2021